Wednesday, July 6, 2011

Popcorn is popping...and the butter is VERY VERY hot

If you recall 2007, you will remember that the world had been shocked by the disorderly unwind of the internal Bear Stearns hedgefund and numerous negative events related to the credit markets...this took the markets on a signficant drop...not all that different from the one we have recently had. Now what was interesting to me was that people got really scared on that drop, but when the market rallied to subsequent highs in the Dow and S&P500 they lost that fear and a last dip was an all out party when it was bought. Every second, third and fourth rate name was bought and if you recall mostly Solar and China names were the absolute epitome of the rage. I recall a solar stock that I traded for a few bucks in a single day that I was quite happy with that ended up rallying something well over 200% in that day (and I only got a few points). I recall quite a few popcorn names in the china space rallying sometimes over 300% in a single session. Below is an esample you may remember of a company hyping china hyperbole and you can see how that turned out:

Well, the attitude that "there was no risk that was not worth taking" in those types of names ended up demonstrating just how disconnected the markets became and how toppy and flimsy the basis for attitudes attempting to levitate the markets. What I see right now reminds me of that period exactly. People are popping popcorn and having a party...the feeling that risk can endup being dangerous is a "subject for another time and definitely not THIS market" - according to the current market collective. The important thing is to understand that "IT IS NEVER DIFFERENT THIS TIME" and the results of this hysterical, manic behavior I am seeing via the deleveraging and momentum crowd seeking to participate in hyped names seems to be fever, it looks like we are Dec 2007 all over again, except this time all the problems are much to big to fail. Right?

The butter that may get poured on this popcorn poping fest is likely to be scalding hot...
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